Friday, October 6, 2017

The New York Times Publishes Op-Ed by a Crazed "Government Deficits Don't Matter" Economist

Stephanie Kelton, a professor of public policy and economics at SUNY Stony Brook who served as chief economist on the U.S. Senate Budget Committee in 2015 and was an economic advisor to the Bernie Sanders 2016 presidential campaign, has apparently decided to raise her profile to support crazed government deficit spending.

On Wednesday, she was back at it with an op-ed in The New York Times, where she had this to say:

Because bigger deficits wouldn’t wreck the nation’s finances... The government’s deficit is always mirrored by an equivalent surplus in another part of the economy.

This is simply thinking that doesn't look at the full picture, Money borrowed by the government squeezes out private sector borrowing. That is savings are used to fund the government bureaucracy instead of the creative, competitive private sector.

27 comments:

Robert they can't grasp it because they are confident that the Fed will simply increase the money supply to "fill in" all of the deficits. Supply of investible funds increases and interest rates stay low. So, see, deficits don't matter(!) (until carrying costs become impossible or inflation rages...but they will worry about that "in the long run"!!

The Federal Reserve does not have the authority to "print" money. That is a power given by our Constitution to the members of the House of Representatives. They hold the purse strings. Basic government 101.

MMTers such as Kelton are proposing that the government treasury (not an independent central bank) should have authority to create virtually unlimited funny money out of nothing simply by “spending” it into existence. The “deficit” is merely the difference between what the government spends and takes in via taxation and is essentially irrelevant. Alternatively, the “deficit” is a “surplus” to the “private sector” which it desperately needs to have “savings”. Taxation does not finance spending. The purpose of taxation is only to suck money out of the system in the event of too much inflation. Inflation is the only limit on the system, they claim.Since the government has all this money at its fingertips, it is absurd to claim that it lacks money to fund massive infrastructure projects, a Soviet medical system, social security or to pay off the “debt”.

"MMTers such as Kelton are proposing that the government treasury (not an independent central bank) should have authority to create virtually unlimited funny money out of nothing simply by “spending” it into existence."

No, they don't propose that government should have that authority, they say government already has that authority.

The government does and always has had the authority. Article 1, Section 8 of the Constitution states that Congress has the authority to spend for the public good. The U.S. dollar is a fiat currency issued by the United States government. There is no gold standard nor any other finite resource limiting our ability to spend dollars into existence. Taxes do not fund federal spending. Taxes matter in spending at state and local levels. Taxes also give the U.S. dollar value in that you need the dollars to pay taxes.

Back in 1979 in “Libertarian Review”, Ralph Raico wrote about Lenin and Trotsky, the idiot central planners:

In State and Revolution, written just before he took power, Lenin wrote,

“The accounting and control necessary [for the operation of a national economy] have been simplified by capitalism to the utmost, till they have become the extraordinarily simple operations of watching, recording and issuing receipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic.”

With this piece of cretinism Trotsky doubtless agreed. And why wouldn't he? Lenin, Trotsky, and the rest had all their lives been professional revolutionaries, with no connection at all to the process of production and, except for Bukharin, little interest in the real workings of an economic system. Their concerns had been the strategy and tactics of revolution and the perpetual, monkish exegesis of the holy books of Marxism.

https://mises.org/library/trotsky-ignorance-and-evil

This is the same problem that afflicts the MMTers. Look for it because it is behind everything they think or say. They understand nothing of economic calculation, knowledge in society, production or real savings.

I actually used to write long pieces about the MMTers 4 and 5 years ago. It is impossible to nudge them to engage actual Austrian concepts (as is the case with all anti-Austrians and anti-libertarians):

"Hayek believed that his economic vision provided the foundation for his support for free markets, but a careful reading of The Road to Serfdom (1944) suggests that he advocated minimal government involvement in economic activity because he saw hierarchical and collectivist political systems as a threat to individual liberty, not because his economics per se had demonstrated the superiority of unregulated markets. The examples on his mind at the time—the Soviet Union under Stalin and Germany under Hitler—were convincing enough exhibits for his case. But, seven decades later, we have a record of sustained liberal democratic values in economies with substantial government involvement, and the evidence does not support Hayek’s most dire prediction.Fortunately, Hayek’s economics and his political philosophy do not have to be taken as a package; it is possible to appreciate his insights into the functioning of a market economy without following him down the road to laissez faire. On this point we find ourselves agreeing with George Orwell (1944), who tempered an otherwise favorable evaluation of The Road to Serfdom with the caveat: 'Professor Hayek...does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State.'"Retrospectives: Friedrich Hayek and the Market Algorithm, pp. 226-227http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.31.3.215

The MMT thinkers are increasingly serving as part of a broader progressive effort, as the breadth of the panels at the conference shows.

What I found to be the most exciting and important initiative is the way the Modern Money Network, a law-school focused group, has grown. The MMN explicitly intends to counter the law and economics movement, which was a well-orchestrated campaign starting in the 1970s to make the legal system more business friendly.

Your specific objections to her article has been refuted in various papers by all the MMT economists, and also by Alan Greenspan. Check out MMT, you guys, it is the only economic view that allows any sort of progress whether you're Republican or Democrat. The money system is accurately described in her article, there is no opinion about that, just good accounting.

Is the us gov. The monopoly issuer of the gov. Money called the US dollar? If true (duh) then why would the creator of the US dollar need to borrow what it and oonly it cans create? So now run around screaming about inflation as Japan runs deficits of 250% of it's entire GDP for 40 yrs. And still have a problem with deflation?

Bill Black: "There’s something invigorating about people freaking out about modern monetary theory (MMT). They treat MMT as akin to the Ark of the Covenant in the first Indiana Jones movie. They are petrified that knowledge of the financial equivalent of the 'holy of holies' will be released to normal people because they project their greatest terrors onto the possibility that the public will be transformed and empowered by their knowledge of matters that much of the financial world has understood for at least a century. ...The attacks on MMT and my UMKC colleagues’ development of job guarantee programs from the hard right and libertarians for informing the public about what people in finance have known for roughly a century are understandable. They both project their worst fears of government unto the proposals. Their worst fear, of course, is that democratic governments would be successful in helping people and that the people would view democratic decision-making favorably. They know, however, that openly stating their worst fears is a poor strategy. They have long talked instead of the sure ruin of inflation should the government fund effective social programs." http://neweconomicperspectives.org/2015/01/public-understood-money-works.html

"Money borrowed by the government squeezes out..." How does that work? Does it raise interest rates at all? Doesn't the government choose the interest rate at which it is borrowing? It is raising interest rates then that does this and if the Fed thought raising then we're a problem it wouldn't do it. Right?

The main premise the author opposes Professor Kelton on is wrong. He states: "Money borrowed by the government squeezes out private sector borrowing. That is savings are used to fund the government bureaucracy instead of the creative, competitive private sector." In a sentence: Government spending crowds out private lending.

This is absolute hooey as banks do not need deposits (savings), outside money to make loans.

Banks make loans based on the credit worthiness of the borrower, and worry about the Reserve Requirement (RR) afterwards. The RR is the percentage of "money" must keep in their vaults.

For example: Bank A makes a loan. The money from Bank A's creates a deposit in Bank B. Bank B now has an excess of "money" (Reserves) that can be lent to other banks through inter-bank lending allowing them to meet the RR.

Once one understands that Banks do not need outside money (deposits) to make loans. Loans create their own excess Reserves. Banks lend each other excess reserves to meet RR the picture snaps into focus. It is clear that Banks do not need money from outside the Banking system to make private loans.

The issuing of Treasury bonds and Private Bank lending are two separate operations, that do not compete for a fixed pool of money.

Please get over your Gold Standard mentality already, when the fixed loanable fund model made sense!

The main premise the author opposes Professor Kelton on is wrong. He states: "Money borrowed by the government squeezes out private sector borrowing. That is savings are used to fund the government bureaucracy instead of the creative, competitive private sector." In a sentence: Government deficit spending borrowing crowds out private lending.

This is absolute hooey as banks do not need deposits (savings), or outside money to make loans.

Banks make loans based on the credit worthiness of the borrower, and worry about the Reserve Requirement (RR) afterwards. The RR is the percentage of "money" must keep in their vaults.

For example: Bank A makes a loan. The money from Bank A's creates a deposit in Bank B. Bank B now has an excess of "money" (Reserves) that can be lent to other banks through inter-bank lending allowing them to meet the RR.

Once one understands that Banks do not need outside money (deposits) to make loans reality sets in, Loans create their own excess Reserves, and Banks lend each other excess reserves to meet RR the picture snaps into focus. Banks do not need loanable funds from outside the Banking system to make private loans.

The issuing of Treasury bonds and Private Bank lending are two separate operations, that do not compete for a fixed pool of money.

Please get over your Gold Standard mentality already, when the fixed loanable fund model made sense!

Almost all Treasury bonds are purchased from existing reserve accounts, which is just a matter of shifting dollars from checking to savings. I hardly think that sub 1% returns are going to "crowd out" other investments. MMT is nothing more than an accurate description of our monetary system. It also lays out why taxation is not a revenue source and shouldn't be considered as such.

It will be interesting to know if, on reading the comments here, that the author will understand his errors and change his story. The correspondents are a lot more on the money than Wenzel.Actually deficits do matter. In the annual accounts the government has to deficit spend so the economy can grow. which is that money withdrawn in taxes is less that the sum the government can spend into the economy. There is no sign that he is willing to learn that deficit spending grows the economy and taxes moderate it!